There is no question that Michigan’s 24% Wholesale Cannabis Tax Will Force Consolidation.
When states impose heavy new taxes on cannabis production or distribution, the brunt of the burden often lands hardest on small, independent operators. Michigan’s House has passed a bill that would impose a 24 percent wholesale excise tax on marijuana sales and transfers between licensees, in addition to the existing 10 percent retail excise and 6 percent sales tax. While lawmakers project nearly $420 million in new revenue for infrastructure purposes, the risk is that many small cultivators, processors, and retailers will not be able to survive under the pressure.
Margins in legal cannabis are already notoriously tight. Many small operators depend on lean cost structures and incremental scale to stay afloat. Introducing a wholesale tax forces all operators to absorb or pass along another cost increase. Larger, vertically integrated firms are better equipped to internalize and spread these costs (or optimize supply chains) without going out of business. Smaller players, by contrast, may lack the capital reserves or operational flexibility to absorb the hit, pushing them toward acquisition, exit, or consolidation. In short, a tax burden of this magnitude risks accelerating industry consolidation, rewarding firms with deeper pockets rather than fostering a competitive, diverse ecosystem.
This increase is significant. California’s state excise tax increase, from 15 percent to 19 percent, sparked significant alarm across the industry. Media outlets were in a frenzy, reporting statements such as “people are so concerned with their survival … it’s a dangerous space.” The increase was so unpopular that the Legislature rolled it back, reinstating the 15 percent rate through 2028 under AB 564. That rollback was championed as necessary to “give legal businesses a fair chance” to remain viable.
In Michigan, by contrast, there’s little question that the wholesale tax would force consolidation. The state’s adult-use cannabis market already experiences competition over price and scale.
· Michigan’s proposed wholesale tax would likely favor consolidation.
· The state’s adult-use cannabis market is already highly competitive on price and scale.
· Many small cultivators and processors operate on razor-thin margins and rely on volume or supply contracts to stay afloat.
· Adding a 24 percent upstream excise tax raises the bar for survival.
· Smaller firms may be forced to merge or sell to larger operators to gain economies of scale.
· This would squeeze out independent voices and reduce the competitive diversity that legalization was meant to support.
Moreover, when fewer firms dominate production or distribution, market dynamics shift. With less competition, market power concentrates, potentially allowing larger players to shape pricing, supply, and regulatory influence. What begins as a tax intended to raise revenue may ultimately reshape the industry structure, making entry more difficult and reducing the diversity of participants.
The stated rationale for this tax is to align cannabis more closely with other “sin taxes” such as alcohol & tobacco, but that reasoning ignores the long-term consequences. Right now, because of market limitations, Michigan has a rare opportunity to maintain economic diversity and keep cannabis dollars circulating locally. Once federal legalization arrives, margins will be compressed so dramatically that only a handful of large players will remain. If Michigan is comfortable with its entire cannabis supply chain being controlled by a few conglomerates, this tax is a step in that direction. But if the state wants its cannabis industry to remain vibrant and homegrown, it needs to reconsider this approach and recognize that cannabis is not alcohol or tobacco, it is an emerging market that still needs room to grow.
Justin Botillier is a cofounder and CEO of Calyx CPA, a firm specializing in tax preparation, accounting, and business consulting for the cannabis and psychedelic industries. With two decades of experience in taxation and over a decade serving the cannabis industry, Justin and his team have helped clients save millions of dollars by leveraging aggressive and defensible strategies to mitigate the impact of 280E.